Posts Tagged ‘Seminar’

AUGUST 23, 2010 VOLUME 17 NUMBER 27
It really is unfortunate that we didn’t see this problem coming. Those of us who pioneered special needs trust planning back in the 1980s should have realized that we were setting up everyone (including ourselves) for confusion. We should have just given the two main kinds of special needs trusts different names. But we didn’t, and now we have to keep explaining.

There are two different kinds of special needs trusts, and the treatment and effect of any given trust will be very different depending on which kind of trust is involved in each case. Even that statement is misleading: there are actually about six or seven (depending on your definitions) kinds of special needs trusts — but they generally fall into one of two categories. Most (but not all) practitioners use the same language to describe the distinction: a given special needs trust is either a “self-settled” or a “third-party” trust.

Why is the distinction important? Because the rules surrounding the two kinds of trusts are very different. For example, a “self-settled” special needs trust:

Must include a provision repaying the state Medicaid agency for the cost of Title XIX (Medicaid) benefits received by the beneficiary upon the death of the beneficiary.

May have significant limitations on the kinds of payments the trustee can make; these limitations will vary significantly from state to state.

Will likely require some kind of annual accounting to the state Medicaid agency of trust expenditures.

May, if the rules are not followed precisely, result in the beneficiary being deemed to have access to trust assets and/or income, and thereby cost the beneficiary his or her Supplemental Security Income and Medicaid eligibility.

Will be taxed as if its contents still belonged to the beneficiary — in other words, as what the tax law calls a “grantor” trust.

By contrast, a “third-party” special needs trust usually:

May pay for food and shelter for the beneficiary — though such expenditures may result in a reduction in the beneficiary’s Supplemental Security Income payments for one or more months.

Can be distributed to other family members, or even charities, upon the death of the primary beneficiary.

May be terminated if the beneficiary improves and no longer requires Supplemental Security Income payments or Medicaid eligibility — with the remaining balance being distributed to the beneficiary.

Will not have to account (or at least not have to account so closely) to the state Medicaid agency in order to keep the beneficiary eligible.

Will be taxed on its own, and at a higher rate than a self-settled trust — though sometimes it will be taxed to the original grantor, and sometimes it will be entitled to slightly favorable treatment as a “Qualified Disability” trust (what is sometimes called a QDisT).

So what is the difference? It is actually easy to distinguish the two kinds of trusts, though even the names can make it seem more complicated. A self-settled trust is established with money or property that once belonged to the beneficiary. That might include a personal injury settlement, an inheritance, or just accumulated wealth. If the beneficiary had the legal right to the unrestrained use of the money — directly or though a conservator (or guardian of the estate) — then the trust is probably a self-settled trust.

It may be clearer to describe a third-party trust. If the money belonged to someone else, and that person established the trust for the benefit of the person with a disability, then the trust will be a third-party trust. Of course, it also has to qualify as a special needs trust; not all third-party trusts include language that is sufficient to gain such treatment (and there is a little variation by state in this regard, too).

So an inheritance might be a third-party special needs trust — if the person leaving the inheritance set it up in an appropriate manner. If not, and the inheritance was left outright to the beneficiary, then the trust set up by a court, conservator (or guardian of the estate) or family member will probably be a self-settled trust.

That leads to an important point: if the trust is established by a court, by a conservator or guardian, or even by the defendant in a personal injury action, it is still a self-settled trust for Social Security and Medicaid purposes. Each of those entities is acting on behalf of the beneficiary, and so their actions are interpreted as if the beneficiary himself (or herself) established the trust.

Since the rules governing these two kinds of trusts are so different, why didn’t we just use different names for them to start with? Good question. Some did: in some states and laws offices, self-settled special needs trusts are called “supplemental benefits” trusts. Unfortunately, the idea didn’t catch on, and sometimes the same term is used to describe third-party trusts instead. Oops.

We collectively apologize for the confusion. In the meantime, note that the literature about special needs trusts sometimes assumes that you know which kind is being described and discussed, and sometimes even mixes up the two types without clearly distinguishing. Pay close attention to anything you read about special needs trusts to make sure you’re getting the right information.

Want to know more? You might want to sign up for our upcoming “Special Needs Trust School” program. We are offering our next session (to live attendees only) on September 15, 2010. You can call Yvette at our offices (520-622-0400) to reserve a seat.

This has been a tumultuous year for estate planning attorneys—and for their clients. The federal estate tax has been repealed, there are new rules in effect governing Roth IRAs, and heirs are facing higher capital gains liability. We don’t profess to have all the answers, but we think we have a pretty good handle on the questions.

You may agree with us when we say it would be productive to get together and review the current situation. In the next in our series of client education program, scheduled for Thursday, May 6, 2010, we hope to meet with as many of our clients as we are able, to review what is happening, what might change and what should be done.

As of January 1st, the federal estate tax has been eliminated – for this year only. What are the consequences of the repeal of the estate tax? What are the chances Congress will act this session to reinstate the estate tax? What does the tax look for 2011? What does the elimination of the “step-up in basis” mean for your heirs? Is it possible that your family could pay more in capital gains tax than they would have paid in estate tax?

We’ll talk about the (temporary) repeal of the estate tax and whether you should consider changes to your family trust or estate plan. We’ll talk about the competing proposals for changes to the estate tax exemption and the tax rate, and speculate about how likely it is that any one proposal will become law.

Recent rule changes make it easier for wealthier individuals to convert traditional Individual Retirement Accounts to Roth IRAs. Together, we’ll compare the ways in which IRAs and Roth IRAs are taxed, the distribution requirements for each, and the costs associated with making a conversion, so that you can decide what is right for you.

We know from talking to many of our clients that reducing the burden of probating your estate is a major concern. Beneficiary designations are an important tool for transferring assets to your family upon your death. Sadly, many people fail to take full advantage of this useful estate planning tool, or neglect to update their beneficiary designations when family situations (or estate plans) change.

We’ll take this opportunity to review the categories of assets that can be transferred via beneficiary designation, explain how the beneficiary designations work, and encourage you to review your existing designations to make sure that they are consistent with the rest of your estate plan.

This client education program is scheduled for Thursday, May 6th. The program is available to our clients (and family members and invitees) free of charge, but space is limited. To make reservations, telephone Yvette at (520) 622-0400. We look forward to seeing you there!

Do you wonder what will happen if you are no longer able to live independently? Will you have to “go into a home?” Is a nursing home the only way to go, or are there other living situations that might allow more independence? What will happen to your spouse? And who will pay for all of this? Medicare? Medigap insurance? Your kids? Is long term care insurance the answer?

Elders whose care is not covered by Medicare (and beware, Medicare covers only a limited period of “skilled” nursing care) have to look to Medicaid for help. Arizona has its own Medicaid program, the Arizona Long Term Care System (ALTCS). Unlike Medicare, which is available to elders above age 65, ALTCS applicants must qualify both medically and financially. The financial eligibility criteria are stringent and complex.

Victoria Blair, one of the partners at Fleming & Curti, PLC, offers a two hour program to address just these sorts of questions on Wednesday, January 27th and Thursday, January 28th. We will serve a continental breakfast and we promise to answer your questions about planning for (and paying for) long term care.

Both programs will include a discussion of the basics of ALTCS. Wednesday’s session will focus on our clients who are considering long term care options for themselves or a loved one. Thursday’s session will be a little more technical, and aimed at case managers, social workers and other professionals who want to better assist their clients. You are welcome to attend either session. There will be no charge for either program, but space is limited and reservations must be secured in advance.

Who should come to ALTCS School? Anyone who is thinking seriously about nursing home care, assisted living or in-home care, or is just curious about the options. Anyone who is contemplating purchasing a long term care insurance policy. Case managers and social workers are welcome (especially at Thursday’s session) and will leave with a clearer understanding and with answers to their questions about the system.

Ms. Blair will explain the medical and financial eligibility criteria for ALTCS. She will review what resources the “healthy” spouse can keep — a house, a car, money to live on — and strategies for “spend down.” She will review the penalties for making gifts (or selling assets for less than their value) to family members. And she will go over long term care insurance policies: what they cost, what they cover, and whether purchasing such a policy makes sense for you and your family.

To attend: contact Yvette in our office at (520) 622-0400 or by e-mailing our office. Please be sure to provide us with contact information and indicate whether you prefer to attend the client/layperson session on January 27th or the social worker/case manager/allied professional session on January 28th.

Want to learn about why you need a trust? No problem: there is a class for that, and they’ll even buy you lunch if you’ll just listen to their pitch. Want to learn whether you need a trust? It’s a little harder to locate good advice, but still there are resources available.

But what if you already have signed a trust, and just want to understand what you are supposed to do? That information can be especially difficult to locate. That’s why we offer our popular “Trust School.”

We will be offering our next two-hour program (formally titled “Now You Have a Trust”) in Tucson on Saturday, July 18. We will offer a continental breakfast, and we promise to answer your questions about the trust you have already signed. As always, our clients and their family members and invited guests may attend at no charge; others are welcome on a space-available basis and for a nominal $25 enrollment fee.

Who should come to Trust School? Anyone who has signed a trust but wants to understand it better, plus the individuals named as successor trustees. Accountants, brokers, insurance agents and other professionals are also welcome and will have a chance to get their questions about trusts answered.

If you are comfortable that you understand your trust document and the rules under which your trust operates, you might not need to attend. There are recent changes in the law, however, that might make your understanding of the trust somewhat dated. Among the changes:

Arizona has now adopted a version of the Uniform Trust Code. That will have little or no significant effect on many trusts, but some (particularly those that are irrevocable or become irrevocable after the death of one spouse) may be profoundly affected by the new law. We will explain the most important changes in the law and address your questions about what the changes mean for you.

The level at which estate taxes are imposed has climbed yet again — this time to $3.5 million. For most people that means that they never need to worry about incurring an estate tax, although the future remains a little cloudy and a few states (not including Arizona) have adopted state estate taxes that are triggered at lower levels.

There are recent changes that affect IRAs and other retirement savings accounts. Minimum withdrawal amounts and charitable gifts have both been altered for the 2009 calendar year.

If you are interested in attending our Trust School, you should contact Yvette at our office. You can reach her at our general office number: (520) 622-0400. If July is a bad time for you, we have scheduled a second session for September 29, 2009; details will be available closer to that date.